As mentioned previously in our news published on July 1st 2020, Germany had decided to temporarily lower its VAT rates to 16% and 5% until 31/12/2020 due to the Covid-19 crisis.
There will be no extension of the application of these temporary reduced rates, therefore the rates of 19% and 7% will become applicable again from 1 January 2021.
Generally speaking, the VAT rate which businesses must apply is the rate in force when the chargeable event occurs:
- If the chargeable event occurs before 31/12/2020, then the temporary reduced rates of 16% and 5% apply.
- On the other hand, if the chargeable event occurs from 1 January 2021, then the normal rates of 19% and 7% apply.
As a reminder, the chargeable event occurs:
- For supply of goods, at the time of dispatch;
- For supplies of services, at the time of performance of the service.
This also applies to credit notes and advance invoices:
- If the chargeable event of the transaction to which the credit note or advance payment relates occurs before 31/12/2020, then the temporary reduced rates of 16% and 5% apply.
- On the other hand, if the chargeable event of the transaction to which the credit note or advance payment relates occurs after 1 January 2021, then the normal rates of 19% and 7% apply.
Source: German Federal Ministry of Finance (pdf in German)
